With the public finances in the UK in decent shape relative to France and the US, and the new UK government committing to greater fiscal discipline, we think investors are right not to worry as much about the UK’s public debt. But there is little room for complacency. The new UK government needs to reduce its primary budget deficit sharply to prevent the public debt ratio from creeping higher again. And the looming demographic hit to the public finances means that worries over fiscal sustainability will persist. The way out is boosting the supply side to raise economic growth.
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